‘Bittersweet’ split could help Consol in long run
In a decision called “bittersweet” by Consol Energy’s CEO, the Southpointe-based company is severing a five-year-old agreement with Houston, Texas-based Noble Energy Inc. to explore, develop and operate wells on Marcellus shale properties in Pennsylvania and West Virginia.
“Noble has been a tremendous partner, and we have enjoyed the collaborative relationship that we have shared over the past five years,” Consol’s Nicholas J. DeIulius told a conference call Monday morning. “It is a great company and a great team.”
A professor at California University of Pennsylvania and a gas industry marketer in the Mon Valley said the move may be a good one.
“Two companies feel it is more profitable for them to separate and each one focus on its core business,” said Dr. Nan Li, who teaches business and economics. “It is actually a positive signal to investors.”
“On the surface it does not appear that the gas industry will be impacted,” said David Marks of Pennsylvania Energy Fuels LLC in Duquesne. “This could be a plus for well service personnel if the separated venture has different preferences for vendors.”
The decision affects gas drilling on 669,000 acres with a daily production of 1.07 billion cubic feet, with Consol retaining 100 percent working interest in 306,000 acres producing approximately 620 million cubic feet per day, mostly in Pennsylvania, while Noble retains full working interest in 363,000 acres producing approximately 450 million cubic feet per day, mostly in West Virginia.
However, Consol spokesman Brian Aiello said Consol also would retain 53 drilled-but-uncompleted, or DUC, wells in West Virginia, while Noble would retaining 22 DUCs in the split. Aiello also said Consol would retain rights to dry-gas development of Utica shale found under all Marcellus acreage that goes to Noble.
Dry-gas development refers to natural gas such as that piped into homes and businesses for heating and related uses. That differs from wet-gas development, referring to liquid propane, butane and ethane, the latter a material that would be converted into ethelyne for plastic manufacturing at the Shell cracker plant under construction near Monaca, Beaver County.
”The development budgets would be the source of impact,” Marks said. “That is, which, if either company, has budgeted new exploration dollars. A rising rig count in these stacked plays can mean more supply, including unwanted (natural gas liquids).”
Along with the split, Noble Energy will pay approximately $205 million to Consol Energy at the closing of the deal, which is expected by year’s end. According to a joint Consol-Noble news release, that would cover a remaining outstanding carry-cost obligation due from Noble to Consol.
Noble CEO David L. Stover also had laudatory comments regarding Consol.
“The accomplishments of our joint venture over the last five years are outstanding, including significant increases in combined production and recoverable resources,” Stover said in that joint news release. “These outcomes are a direct result of the high-quality nature of the acreage, but even more so a result of the combined technical leadership and coordination between our two companies.”
Li said she had only a “very limited understanding” of the Consol-Noble split as well as another recent Consol effort, to spin off its coal operations to CNX Coal Resources LP.
“I think a lot of energy companies have been having dramatic difficulties in covering their costs,” Li said. “Maybe this split will lower their administrative costs, or maybe it would be easier (for each company’s operations) to be managed.”
However, she thought it would allow Consol to cut costs, making it small enough to survive but not so small that it becomes a target for someone else to consider a takeover bid.
”If the joint measure is not as promising as they had thought, it is prudent for Consol to make the move,” the Cal U professor said.
The move came a day before Consol was scheduled to issue its third-quarter earnings report and two days before a similar announcement from Noble.
In Greene County, Consol wells include operations in Center, Cumberland, Monongahela and Morris townships. Noble wells include operations in Richhill Township on the northwest corner of the county. In Washington County, Consol wells include operations in East Finley, Morris, South Franklin and West Finley townships.